Were you intrigued by “The $8 Billion iPod,” Rob Reid’s short TEDTalk about the new science of Copyright Math (TM)? We were. We needed to know more. More numbers, Rob! we said. And Rob (whose comic novel Year Zero comes out in July) sent us this treatise, a master class in creative mathematics:

A few weeks back, I gave a short TED talk about “Copyright Math.” Since TED draws both Hollywood and Silicon Valley bigwigs, I thought it would be a great venue for raising certain rights issues that have been a sore point between the two industries for years. But January’s brawl over the proposed SOPA law was a raw and recent memory. So I decided to make my talk playful, rather than sermonizing. Everyone can laugh at silly infographics. And who DOESN’T want to deface a Leave-it-to-Beaver-like Christmas scene with pirate-and-Santa graffiti?

Since the talk was so short, I couldn’t dive deeply into the numbers and sources that I based it on (which would have shattered the whimsical tone anyway). But even my silliest numbers were derived from actual research, performed by an actual Copyright Mathematician (me, that is). So I thought I’d use this blog post to put my sources and calculations out there for anyone who’d like to nerd out on the details.

First, the Motion Picture Association’s claims of $58 billion in actual US economic losses and 373,000 lost jobs came from this press release[1] (which can also be found on Scribd[2]). These numbers originated at a think tank called the “Institute for Policy Innovation” – an organization that Businessweek once profiled in an article called “Op-Eds for Sale.”[3] In it, an IPI analyst freely admitted to taking payoffs from disgraced lobbyist Jack Abramoff[4] in exchange for writing “op-ed pieces boosting the lobbyist’s clients.” The IPI’s president supported this behavior, saying it was neither wrong nor unethical, and dismissing those who apply “a naïve purity standard” to the business of writing op-eds.

This doesn’t necessarily mean that MPAA lobbyists paid the IPI to conjure up these numbers. But whatever their genesis, they’re not easy figures to support. In a February New York Times piece,[5] an MPAA spokesman did his best by attributing the eye-popping $58 billion sum to “piracy’s impact on a range of tangentially related industries — florists, restaurants, trucking companies, and so on.” Florists? Really? Exactly how many bouquets go unsold whenever someone swipes a copy of My Sharona?

Ignoring improbabilities like pirated steaks and daffodils, I looked at actual employment and headcount in actual content industries, and found nothing approaching the claimed losses. There are definitely concrete and quantifiable piracy-related losses in the American music industry. The Recording Industry Association’s website has a robust and credible database[6] that details industry sales going back to 1973, which any researcher can access for a few bucks (and annoying as I’ve found the RIAA to be on certain occasions, I applaud them for making this data available). I used it to compare the industry’s revenues in 1999 (when Napster debuted) to 2010 (the most recent available data). Sales plunged from $14.6 billion down to $6.8 billion — a drop that I rounded to $8 billion in my talk. This number is broadly supported by other sources, and I find it to be entirely credible.

But this pattern just isn’t echoed in other major content industries. My movie industry figures (showing significant growth from the rise of Napster to the present day) came from a meticulously researched report by BMO Capital Markets[7] called “Perspectives on the Filmed Entertainment Industry” which is sadly not currently findable on their website (and BMO — if you’re listening, please do the world a service, and at least publish “Exhibit 9” publicly!). My TV, satellite and cable figures (showing spectacular growth during the same period) came from the same outstanding report. I didn’t have time to discuss them during my talk, but numbers from local media analysts BIA/Kelsey showed robust growth in radio[8] in the years immediately following Napster’s debut. This was followed by a brief, agonizing contraction in the 2007-09 timeframe[9], which the organization attributes wholly to the recession, rather than piracy.[10]

So where is the missing $50 billion in piracy? It’s hard to accept that it’s foregone growth in markets that have grown in line with, or (in the case of the giant TV/ satellite/ cable market) far faster than historic norms. So we’re left looking for a market that has no historic norms. Because in such a case, one can tenuously argue that but for piracy, it might have grown at such a blistering rate as to make $50 billion in foregone sales at least hypothetically possible. So what significant American media market literally didn’t exist at all in the ’90s?

The best I could come up with was downloadable ringtones, which were first launched in Japan and Finland in 1998, [11] and didn’t appear on these shores until later.[12] Sure, citing ringtones was a punch line. But if the MPAA can document $50 billion in other pirated media, I’d love to hear about it.

And in case you’re wondering, at 30 seconds per ringtone, and $1.39 a pop (this was the lowest price I could find for ringtones anywhere, and I figured we’d get a bargain by buying in bulk), we’re looking at 34,218 years worth of ringtones — which, laid end to end, would stretch clear back to the late Neanderthal period.[13] And for you astrophysicists, the penny is ¾ of an inch in diameter.[14] 5.8 trillion of these suckers would therefore stretch for 68,655,303 miles, which can easily connect the Long Beach Westin to Mars when we’re on a close approach.[15] And for a mere $128, we could extend that journey clear to the auditorium that contains the TED stage. Meanwhile, my agricultural crop values all came from Wikipedia.[16]

As for the MPAA’s employment numbers, I compared them to data reported by the US Bureau of Labor Statistics in its 2010-11 “Career Guide to Industries.” This put the motion picture and video industry’s total employment at 361,900 jobs.[17] The 2000-01 edition of the same guide put employment at 270,000 in 1998.[18] The 2000-01 Guide simply uses “Motion Picture Production and Distribution” as the industry descriptor, but a close reading of both Guides seems to indicate that they’re talking about the same industrial sector, so I infer that the 1998 Guide used “Motion Picture” as shorthand for the broader filmed entertainment sector.

As for music industry employment, I took the average revenue per employee at Universal Music in 2010 (roughly $852,000),[19] at EMI in 2009 ($300,000),[20] and Warner Music Group in 2008 (about $875,000).[21] This gave me an average revenue-per-employee of about $675,000 throughout the industry. Applied to the industry’s 1999 revenue, this ratio implies total employment of about 22,000 at record labels, which I doubled to account for the retail side of the business as well. This is clearly an imperfect estimate, but even if it’s off by 100% (and I’m quite certain that it’s not), it doesn’t undermine my bigger point. In any event, I combined my music industry number with the Bureau of Labor Statistics’ filmed entertainment number to get my starting-point content industry employment. I then subtracted the claimed 373,000 in job losses to infer in the (obviously playful) “negative employment” statistic.

To me, the most depressing number in the presentation is the $150,000 maximum fine that Congress designates for “willfully” pirating a single copy of a single song under the Digital Theft Deterrence and Copyright Damages Improvement Act of 1999.[22] This number is grotesquely divorced from the actual damages and harm caused by a single instance of piracy. As such, it represents a naked perversion of “The Law” — turning it from a source of justice into a bludgeon for a powerful and cynical lobby. The music industry has sued more than 30,000 US citizens under this law. Since the consequences of losing would be bankruptcy in almost all cases, the crushing majority of defendants settled without daring to challenge the industry. As a result, the maximum $150,000 per-song fine has never actually been imposed (although one student is currently fighting a verdict of over $20,000 per song,[23] and a single mom was hit with an $80,000-per-song ruling,[24] which was later reduced, but is still being debated in appeal).

In determining a given device’s maximum capacity for infringing material, I assumed an average song length of three minutes, and an encoding rate of 128 kilobits/second. I went with 128 kbps because using the AAC codec,[25] this is the rate at which music achieves “hi-fi transparency[26] — which is to say, it becomes indistinguishable from CD quality in most listening environments. This rounds very closely to 1 megabyte of data per minute of music.[27] At 32 megabytes, the Rio (1999’s Christmas hit) therefore had room for about 10 songs, which, if pirated, could represent up to $1.5MM in liabilities under US law. Today’s iPod classic, with its 160GB capacity, can hold 53,333 songs, which at $150,000 a pop is precisely $8 billion. Incidentally, Apple markets the iPod classic as having room for just 40,000 songs, but by my math, that’s selling it short. I meant to note this in the presentation, but I was running way over time by then, and spared everyone the convoluted math (so if the leap from 40,000 songs to an $8 billion liability confused anyone, I apologize — I had meant to take a quick detour through that 53,333 figure!).

FINALLY: the 75,000 jobs figure was just a joke. I think that was probably obvious.

And as for alien music liabilities … well, that happens to be major area of interest and research for me. But I’ll leave that for another forum.

Pixar films are known for their thoughtful storytelling and groundbreaking animation. One of the coolest things about these movies: the math that Pixar’s team is actually inventing to improve the audience experience and the look of the characters. We caught up with Pixar’s Research Lead, Tony DeRose—who gave the TED-Ed Lesson, “The math behind the movies,” about how arithmetic, trigonometry […]

When TED asked Hannah Fry to write a book on the mathematics of finding true love, Fry happened to be — of all places — on her honeymoon. “[My husband and I] have been together for a really long time, so the whole newlywed thing didn’t quite apply,” she says. “But I did feel like […]

Comments (149)

So in this article, the author asks this: “So what significant American media market literally didn’t exist at all in the ’90s?”

I’m thinking he might have missed a huge industry that didn’t exist in exactly the same manner in the 90’s than today: video games.

While it’s true it wouldn’t necessarily account for the whole $50 billion that the industry keeps floating about, the video game industry managed to make 17.02 billion in 2011 (http://www.newsfactor.com/story.xhtml?story_id=81763) and that’s still a substantial amount. The video game industry didn’t exist as it currently does in the 90’s, and I’m positive there’s some cross-industry cannibalization going on there where people have shifted their disposable income from one place to another. Personally, I’d love to see more research in this trend, because I’m sure it has quite a noticeable effect.

perfectimpcommented on Mar 23 2012

I find it amusing that Mark seems to be King Canute here, ordering the tide back.

The problem, Mark, with your scenario taht a producer of content witholding it to build interest, such as Disney periodically sending a film “back to the vault” is that they usually communicate that it will return someday in the future, but it will be years away.

However, in the case of certain properties, such as the television based properties I have discussed, the company has remained silent. They have never answered any inquiries from numerous sources, even to say “No, we never intend to rerelease the material.” This sphinx-like response is indeed puzzling, and tus forces the fans of the material to try and figure out alternatives,

Of course, your ideal alternative would be you, as the producer of the material, to accept giving someone like me as the fan the middle finger and telling me to figuratively get off your lawn.

You don’t like me stealing. But you being an arrogant a-hole isn’t much better, Mark.

First of all, resorting to name-calling does not enhance a discussion at all. I have not been disrespectful to anyone here.

I HAVE ALREADY SAID in these posts that it is silly for Disney or any other company to withhold a product when there is an obvious market for it. But, to say because one big silly company means it’s okay to pirate whatever you want, when you want it, seems just as arrogant to me.

Many of the comments here have made the point that *copying* is not *stealing* – and I agree.

What some posters, and certainly the industries seem to think is that somehow the sheer scale is what makes the act illegal – which is of course preposterous. If there’s no problem with the small-scale sharing when I stick my earphones in my friend’s ear, then increasing the scale makes no difference to the act itself. This should be (and is) obvious, which is why most thinking people have serious issues with the industry’s stance.

Twenty years ago, I could pop a tape into my VCR and record Murphy Brown, to watch and re-watch as many times as I pleased. Who was I stealing from? Every person on my street could do the same thing. Every person in my town. Every single person in my state, heck, every last person in the country could do the exact same thing – pop a tape in and record.

It’s no different now. Only, instead of putting a tape into my VCR and hitting ‘record’, I’m pressing ‘download’ on a webpage. If the content providers weren’t ‘losing’ massive amounts of money on people pressing ‘record’ then, they aren’t now either. The ONLY difference is that due to technology, it has become easier to share content. It’s also become easier to KNOW that people are sharing content. Previously, I could share my tape with as many people as I knew – that tape could have been played until it wore out. And the content providers wouldn’t have had the faintest idea. But now, they can ‘see’ all the files being passed back and forth, and they’ve greedily attached a price tag to every exchange.

Others have said it better than I can, and others will continue to say it better. In that vein, here’s a link to a page on Stephen Fry’s website – he did a podcast a few years ago on this topic. (http://www.stephenfry.com/2009/07/27/series-2-episode-4-itunes-live-festival/) But what really hits the nail on the head is the first comment on that page’s thread. The commenter states quite cogently that it’s not about theft, and it’s not about property. It’s about Art – and when you pay for Art, you’re not paying for property, instead you’re exercising patronage. Art (because it is an idea) is not a discrete *thing* that can be purchased and hoarded. It is something that can be shared, and compensated – so that the Artist can then go and make more Art.

Humans share – it’s what we do. Attempting to criminalize the sharing impulse will never be effective.

“Sharing” by making a copy of your VHS tape or even a DVD for the family, although legally wrong, is not my issue. When someone who has a large website actually designed to attract piracy that illegally downloads one of my films and makes it available to anyone is crossing the line. I created my films, I financed my films, and I have a right to say when and how they are sold until my copyright expires.

Many of you talk about the big record companies that ripped off the artists. Well, in my case I AM the artist, so it’s okay for you to rip me off because the big companies did it to the other artists?

Also, a few of you say something like “piracy is just a fact so get over it.” Well, alcoholism is a fact. Drug abuse is a fact. But, it doesn’t fix the problem to conclude that it’s here to stay so get over it. Before I’m lambasted for comparing piracy to alcoholism or other forms of drug abuse, I do agree they can cause much more widespread damage to society and families. However, not being able to take care of my family because someone has convinced himself that it’s okay to steal my hard work has a significant impact on MY family.

that anonymous cowardcommented on Mar 22 2012

@Mark Grady – You have spent considerable time decrying everyone else “stealing” content and how its so very wrong.
What is your commentary on the labels not paying Canadian artist’s for the works they placed onto compilation albums and promptly “forgot” to pay for?
Works unjustly stolen form the artists, they were made without permission, while the labels enjoyed all of the profits until someone caught them. Under the law they demand everyone else fall under their liability was several billion dollars. This was settled for IIRC 54 million and one of the labels is actually suing their insurance carrier to pay the bill for them breaking the law.

Every download is not a lost sale.
You can not call it a lost sale when the content is not made available to consumers with money who want to purchase, but the cabal have decided the window for that country is still 6 months out or will never open.
You can not call it a lost sale when people want to see if its actually worth it, 15-30 second samples do not tell you enough.
You can not call it a lost sale when someone who owns the material just doesn’t want to bother with format shifting it to their iThingy when someone else did it already. – This one really makes the industry angry, how dare people who paid for content want to watch it how and where it is convenient for them without paying again and again.

As to the music industry, while the numbers do look grim they often leave off the digital sales numbers rather focusing on the drop in CD sales. I bet you can tie those drops to the lack of stand alone CD players being sold in the marketplace. No longer did the consumer have to buy the plastic disc with 18 songs only to discover 2 decent ones and 16 annoying ones. Now they can purchase just the content they want and avoid the filler. Evidence the music industry is not actually dead or dying might be the just over 4 billion dollars being paid for 2 halves of the carcass of EMI. If the industry was actually suffering as such – the stock holders would have already replaced the fools paying that much for soon to be “worthless” content.

@Anthony Ortenzi –
“You can’t steal things that are in the public domain, and that’s precisely where the founders intended them to end up.”
Actually you can, you can get laws passed that rip things from the public domain and place them back into the hands of the cabal.

My commentary on your scenario is this: What the labels did was steal content from the Canadian artists. No doubt about it.

Plus, I totally agree with you that if someone has purchased the product, I personally believe they have the right to place it on any device THEY own. And, you will not hear an argument from me that most big studios have handled the piracy issue totally wrong. In fact, their handling of the issue, by “locking” DVDs, etc., has caused trouble for very small studios like mine.

Here is my take: The Internet has, for the first time in my 50 years on this planet, allowed my little studio equal opportunity over the Disneys, Paramounts and Sonys of the world. However, the fight to justify piracy will have a negative result. Only the Disneys, Paramounts and Sonys of the world will have the financial backing to overcome any lost sales due to piracy. Those of us who want to take advantage of this opportunity to equally compete, will be the hardest hit because a lost sale to us will have a much heavier impact.

perfectimpcommented on Mar 23 2012

Mark:

Mark:

Hypothetical for you.

If you stop distribution of your film, take it off the market, make it so it is no longer available for sale, or rental, and then someone takes their copy they either purchased or made off of a broadcast and uploads it to YouTube after that. Piracy or not? Remember, you have chosen at this point to withdraw from the marketplace, making all commerce with you impossible.

In your hypothetical, that would be piracy. As the creator of my film, I should have the right to remove something from the marketplace in intervals to create an interest and demand for it. For anyone to search and see that my film may not be currently available is wrong to assume it will always be that way. I guess it really bothers me that people seem to think that when they want something, they should have the right to it NOW! I would be insane to NEVER make it available, but when it is should be up to me.

Since there have been a lot of reference to art here, let me attempt a hypothetical for you:

An artist paints a painting and a small, low-res photo of the work ends up on the Internet and it goes viral. Everyone would love to have that artist’s painting. But, the artist decides he wants it to hang in a special gallery for a while and to protects its value, the gallery does not allow cameras in that section of the gallery. Since someone really wants that painting, is it okay to just sneak a photo of it and provide copies to everyone on the Internet? Really?

Despite all of the important sounding, philosophical rhetoric on the subject, it just bothers me that someone thinks they have the right to unilaterally break the law simply because they want something. I guess I’m the only one here that thinks that sounds selfish.

.ark, you seem to be stuck in this concept of you owning it and having the right to do what ever you want with it. As a member of this society, and a voter, what value does such a concept provide to me versus the concept of people freely allowed to experience and build from each others work. The latter produces more net value to me as a member of society, as long as you have enough incentive to publish in the first place. If you chose to take it off the market, I gain zero by forcing others to respect that choice, and I gain positive value if people accessing it are inspired to create improvements to society. Allowing hoarding is counterIproductive to the very purpose of copyrights, to progress the sciences and useful arts.

You seem to have the same attitude of “mine” that causes people to call copyright owners greedy. Whilke I think that’s excessive, what incentive do I have tosupport the types of laws you suggest versus the net societal value based laws I suggest? As a voter, I want growth and prosperity, not ideological laws that hurt me more than they help.

Dear “C English,” I know I will never change your mind, but if I write something in my home, I do own it.

Based on what I hear from many of you, you seem to think it’s okay to overstep certain boundaries if you want something. So, let me add another scenario:

I write a book, but I don’t feel like it’s ready to release. But, somebody is able to access my computer through hacking and copy my book. They then put it on the Internet without my knowledge or permission.

You mean because it’s “gone virtual on the Internet” that it’s just good for society and thank you for your “contribution to society.”

Tell me, what’s the difference in that and the big record companies that have ripped off the artists over the years?

that anonymous cowardcommented on Mar 26 2012

“Lost Sales” these are what are bothersome.

There will always be those people who will want it for free and take it. Spending time trying to stop them will be pointless. The time, effort, new DRM, etc to stop these people punishes the regular consumers and pushes them to look for alternative sources with less crap.

There will be people who enjoy your content so much they want to share it. Some people might download a copy, some might like some might hate. How much do they have to watch before they are a lost sale? If they watch half and delete it, because they didn’t enjoy it is that a lost sale?

I draw your attention to the success that Louis CK had. Content he controlled was online, he politely asked it be taken down because it wasn’t ready yet. The FAN who had shared it apologized and complied. He then used his connection with his fanbase to offer his latest offering on his website, DRM free for $5. In 12 days he “made” a million dollars. He recouped and donated a portion of the left overs. He treated his Fans like Fans and not like criminals just out to rob him blind.

It takes some work, but sometimes to have to question the “wisdom” that every download is a lost sale, that everyone who downloads just wants it for free, and if you don’t lock it behind 200 doors your asking for trouble. If you don’t sweat the small stuff, treat your fans well they can and will take care of you. It isn’t the right path for everyone, but look at how broken and punishing the current model is for consumers. Can’t go wrong by trying something different.

The problem is using government to enforce a protectionist business model.

Copyright and patent law were created to promote the useful arts and sciences. To encourage innovation, the gov’t said “we’ll make sure that you get a fair shot at making your money back”.

The last Beatles new release was May 8, 1970. After 42 years of people paying for their music (often multiple times on various media), who suffers if we say “enough is enough”?

The debate rages because copyright law is unreasonable, not because it exists.

Patent law in the UK was originally 14 years because that was enough time for two “classes” of tradesmen to learn how to leverage new production techniques before everyone was allowed to use them. These days, expertise and execution happen far more quickly. Is there any sense in US patents for technology to be 20 years? Consider the technology in your home even just 10 years ago as compared to now. Patents with terms this lengthy don’t foster execution on ideas, they foster litigation and execution of competitors.

You can’t steal things that are in the public domain, and that’s precisely where the founders intended them to end up.

People should be compensated for their work, no doubt about it… but in perpetuity? “Creatives” should get an annuity while everyone else… doesn’t? Or more likely, a business which screws the artists by fictionalizing costs should get a cut in perpetuity?

I don’t know where we lost sight of the concept of a public good, but we need to find it again.

cjgallagherjrcommented on Mar 21 2012

Rob –
Your numbers are impressive, to say the least and I thank you for your research. Where do the numbers come from that define the level of quality and originality of the material that these organizations put forth? Regarding the RIAA – How many greatest hits albums are they going to put out for bands? Regarding the MPAA – How many remakes are they going to do in the vain attempts to suck money in from the consumer? What about some of the salaries of the talent that is performing?
What about the economics of the entertainment industry? One division of a company creates the material, then another division markets the material? I remember reading some time ago how entertainment industry sells/justifies some of their figures and it was astounding to read.

The $8 billion; many of the singer/songwriters whose music I buy now have their own websites and manage their own sales/distribution there. I wonder how much of the $8 billion loss to the ‘music industry’ which exploited these artists in the past (giving them very meager royalties) is due to this rather than piracy? I would argue that singer songwriters are the true creators; certainly the media moguls and their lawyers are not. Copyright law was not originally designed to create media moguls.